If exploration drilling fails to prove oil or gas, or if the proven petroleum volumes are too small to warrant profitable development, then the main rule is that the area shall be relinquished to the authorities.
Relinquishment takes place at the end of the initial period (the exploration period), or when the licensees have decided that they do not wish to continue the work program in the production licence.
During the exploration period, the licensees carry out a set work obligation in several phases. The first phase, which normally lasts between one and three years, may include seismic data acquisition and mapping. When this work is completed, the licensees must determine whether they want to proceed to the next phase, which normally entails drilling an exploration well, or whether they wish to relinquish the area.
The initial period, covering the entire work program, normally lasts between six and eight years, with ten years as the maximum. When the initial period is over and the work commitment completed, the licensees can claim the right to retain the production licence in an extension phase, or they can relinquish the area.
For production licences awarded prior to 2004, the main rule is that the licensees can retain up to half the area of the licence for a period up to 30 years provided that the work commitment has been completed during the course of the exploration period. For more recent licences, the extension phase is tied to development and production of proven resources, and only the area covered under the development plan will be continued.
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Source: NPD, September 21, 2010: